United States District Court, D. Kansas
MEMORANDUM AND ORDER
KATHRYN H. VRATIL, United States District Judge
Hotel, LP brings suit against Holiday Hospitality
Franchising, Inc. (“Holiday Franchising”) for
breach of contract, breach of implied duty of good faith and
fair dealing, breach of fiduciary duty and declaratory
judgment. This matter is before the Court on
Holiday Hospitality Franchising, LLC's Motion To
Dismiss (Doc. #3) filed August 31, 2015. For the
following reasons, the Court overrules defendant's
ruling on a motion to dismiss under Fed.R.Civ.P. 12(b)(6),
the Court assumes as true all well-pleaded factual
allegations and determines whether they plausibly give rise
to an entitlement of relief. Ashcroft v. Iqbal, 556
U.S. 662, 679 (2009). To survive a motion to dismiss, a
complaint must contain sufficient factual matter to state a
claim which is plausible - and not merely conceivable - on
its face. Id. at 679-80; Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007). To determine whether
a complaint states a plausible claim for relief, the Court
draws on its judicial experience and common sense.
Iqbal, 556 U.S. at 679.
Court need not accept as true those allegations which state
only legal conclusions. See id.; Hall v.
Bellmon, 935 F.3d 1106, 1110 (10th Cir. 1991). Plaintiff
bears the burden of framing its complaint with enough factual
matter to suggest that it is entitled to relief; it is not
enough to make threadbare recitals of a cause of action
accompanied by conclusory statements. Twombly, 550
U.S. at 556. Plaintiff makes a facially plausible claim when
it pleads factual content from which the Court can reasonably
infer that defendant is liable for the misconduct alleged.
Iqbal, 556 U.S. at 678. Plaintiff must show more
than a sheer possibility that defendant has acted unlawfully
- it is not enough to plead facts that are “merely
consistent with” defendant's liability.
Id. (quoting Twombly, 550 U.S. at 557). A
pleading that offers labels and conclusions, a formulaic
recitation of the elements of a cause of action, or naked
assertions devoid of further factual enhancement will not
stand. Iqbal, 556 U.S. at 678. Similarly, where the
well-pleaded facts do not permit the Court to infer more than
the mere possibility of misconduct, the complaint has alleged
- but has not “shown” - that the pleader is
entitled to relief. Id. at 679. The degree of
specificity necessary to establish plausibility and fair
notice depends on context; what constitutes fair notice under
Fed.R.Civ.P. 8(a)(2) depends on the type of case. Robbins
v. Oklahoma, 519 F.3d 1242. 1248 (10th Cir. 2008)
(citing Phillips v. County of Allegheny, 515 F.3d
225, 232-33 (3d Cir. 2008)).
December 10, 2012, plaintiff filed suit against Holiday
Franchising in Case No. 12-2775-KHV in this Court. In that
case, plaintiff asserted claims for breach of contract,
breach of implied duty of good faith and fair dealing and
declaratory judgment. See First Amended
Complaint (Doc. #6) in Case No. 12-2775-KHV. In
Count I, plaintiff asserted that Holiday Franchising breached
its obligations under a licensing agreement by failing to (1)
provide plaintiff access to the Holiday Franchising
reservations service, (2) provide marketing and advertising
and (3) permit plaintiff to use Holiday Franchising's
marketing, reservation and management system as defined in
the licensing agreement. Id. at 22-23. In Count II,
plaintiff asserted that because Holiday Franchising had
failed to provide “meaningful reservation services,
” it breached the implied covenant of good faith and
fair dealing. Id. at 23-24. In Count III, plaintiff
sought a declaratory judgment that it had substantially
complied with its obligations under the licensing agreement
and/or did not have to perform in light of Holiday
Franchising's breach of the agreement. Id. at
Franchising filed a motion to dismiss asserting that
plaintiff had failed to state a claim upon which the Court
could grant relief. See Memorandum In Support Of Holiday
Hospitality Franchising Inc.'s Motion To Dismiss
Plaintiff's First Amended Complaint For Failure To State
A Claim (Doc. #8) filed February 1, 2013 in Case No.
12-2775-KHV. Specifically, Holiday Franchising asserted that
plaintiff (1) had failed to identify a specific provision of
the license agreement which Holiday Franchising had breached,
(2) could not assert a claim for breach of implied duty of
good faith and fair dealing and (3) did not allege facts
which gave rise to a case or controversy and therefore could
not obtain declaratory relief. Id. at 5, 9-10. On
September 3, 2013, the Court overruled the motion. See
Memorandum and Order (Doc. #18) in Case No. 12-2775-KHV.
The Court rejected Holiday Franchising's assertion that
plaintiff had failed to identify a specific provision of the
license agreement which Holiday Franchising had breached.
Id. at 10. The Court found that plaintiff had
sufficiently stated claims that by failing to provide
reservation, marketing and advertising services, Holiday
Franchising had breached its obligations under the license
agreement. Id. at 11.
August 20, 2014, the parties jointly filed a motion to
dismiss the case so that they could attempt to settle the
matter out of court. Joint Motion To Dismiss Without
Prejudice Under Rule 41 (Doc #53) in Case No.
12-2775-KHV at 2. The parties asked the Court to enter an
order which dismissed the claims subject to certain terms and
conditions, including a condition that if plaintiff refiled
the same claims in this Court, the Court would incorporate in
the new case all motions and orders filed in the previous
case, Case No. 12-2775-KHV. Id. On August 28, 2014,
the Court entered an order of dismissal which included the
parties' requested language, i.e. that all
motions and orders filed in Case No. 12-2775-KHV shall be
incorporated in any subsequent case in which the parties
refiled their claims before this Court. Order Of
Dismissal Without Prejudice (Doc #54) in Case No.
12-2775-KHV at 1-2.
August 4, 2015, plaintiff filed its claims in this case.
Complaint (Doc. #1). As noted, plaintiff asserts
claims for breach of contract, breach of implied duty of good
faith and fair dealing, breach of fiduciary duty and
declaratory judgment. In Count I, plaintiff asserts that
Holiday Franchising breached its obligations under the
licensing agreement by failing to (1) provide plaintiff
access to Holiday Franchising reservations services, (2)
provide marketing and advertising services and (3) permit
plaintiff to use the “System.” Id. at
30-31; see also Plaintiff's Memorandum In Opposition
To Defendant's Motion To Dismiss
(“Memorandum In Opposition”) (Doc. #6)
filed September 21, 2015 at 8. In Count II, plaintiff asserts
that because Holiday Franchising failed to provide
“meaningful reservation services, ” it breached
the implied duty of good faith and fair dealing.
Complaint (Doc. #1) at 31-32. In Count III,
plaintiff asserts that by actions or inactions that have
“denied [plaintiff] the fruits of its License
Agreement, ” Holiday Franchising has breached its
fiduciary duty to plaintiff. Id. at 33. In Count IV,
plaintiff seeks a declaratory judgment that it has complied
with its obligations under the license agreement and/or that
because of Holiday Franchising's breach of the license
agreement, plaintiff is excused from performance
thereunder. Id. at 34-35.
alleges the following facts.
Franchising operates over 700, 000 hotel rooms worldwide.
Complaint (Doc. #1) ¶ 27. Its three major
brands are (1) InterContinental, a luxury brand marketed to
well-traveled, affluent guests; (2) Crowne Plaza, an upscale
brand offering full service facilities targeted to upscale
business, conference and leisure travelers; and (3) Holiday
Inn, a midscale brand offering full service with a reputation
for value. Id.
is a Kansas limited partnership that owns and operates a
full-service hotel located at 12601 West 95th Street (off
Interstate 35) in Lenexa, Kansas (the “Hotel”).
Id. ¶ 19. From 1971 to 1984, the Hotel operated
as a Holiday Inn with 112 rooms. Id. ¶ 30. In
1984, it expanded to 297 rooms and converted to a Holidome
Indoor Recreation Center. Id. In 2003, the Hotel
converted to a Radisson. In 2009, it changed to a Crowne
Plaza with 257 guest rooms on four floors. Id.
¶¶ 19, 30.
relevant times, the Hotel has been one of two Crowne Plaza
hotels operating in an area which Holiday Franchising defines
as the Kansas City, Missouri-Kansas Metropolitan Statistical
Area (“Kansas City MSA”). Id.
¶¶ 1, 6. The other Crowne Plaza hotel is located in
downtown Kansas City, Missouri, about 14 miles from the
Hotel. Id. ¶ 6. An InterContinental Hotel
operates on the Country Club Plaza in Kansas City, Missouri.
Id. Together, these hotels are the only Holiday
Franchising upscale or luxury hotels which operate in the
Kansas City MSA. Id.
early 2007, when the Hotel operated as a Radisson hotel,
plaintiff contemplated converting it to another brand.
Id. ¶ 31. Stephen Craig, a limited partner in
plaintiff, and William Stuckeman, plaintiff's executive,
had numerous conversations with representatives of Holiday
Franchising. Id. ¶¶ 13, 31. Because
converting the Hotel to a Crowne Plaza would cost millions of
dollars and require hundreds of thousands dollars in annual
royalties, Craig insisted on assurances that the Holiday
Franchising reservations system would generate sufficient
customer demand to justify the investment. Id.
¶ 32. Craig had extensive conversations and
communications with Holiday Franchising representatives
regarding the ability of Holiday Franchising to attract
out-of-town business travelers and group demand to the Hotel.
Id. ¶ 34. Holiday Franchising repeatedly
represented that its reservation system - supported by the
internet, call centers and travel booking system - would
market the Hotel as one of only three Holiday Franchising
upscale or luxury hotels in the Kansas City market.
Id. Holiday Franchising represented that its
marketing and internet experts would develop a plan to create
visibility for the Hotel in all relevant marketing channels.
August of 2007, Stuckeman made it clear that the key issue
for plaintiff was whether Holiday Franchising could
demonstrate the ability to generate through its reservations
system corporate transient and group demand for the Hotel.
Id. ¶ 37. Holiday Franchising representatives,
Keith Biumi and Mike FitzMaurice,  represented that Holiday
Franchising internet experts would evaluate the Kansas City
market and strategically pick key words to identify the Hotel
as an upscale Kansas City hotel. Id. ¶ 38.
Holiday Franchising represented that it would buy advertising
words designed to maximize the Hotel's internet
visibility and bring the Hotel to the forefront of internet
search engines used by business travelers and upscale
consumers, as well as travel sites like Hotels.com, Expedia
and Travelocity. Id. Holiday Franchising repeatedly
touted that based on the Crowne Plaza brand, the Hotel would
realize immediate and significant benefits from the central
reservations system. Id. ¶ 39.
Franchising recognized that the Hotel operated in the same
market as the Crowne Plaza hotel in downtown Kansas City.
Id. ¶ 36. Holiday Franchising represented to
plaintiff that with a Crowne Plaza hotel located in downtown
and an InterContinental hotel located on the County Club
Plaza, the Hotel would benefit from cross-marketing within
the Kansas City market. Id. Holiday Franchising
represented that it would support a relationship between the
Hotel and the other hotels to collectively enhance and
coordinate efforts between the Holiday Franchising upscale
and luxury brands in Kansas City. Id.
of 2008, plaintiff and Holiday Franchising signed a ten-year
franchise licensing agreement. Under the agreement, plaintiff
paid Holiday Franchising $74, 000, committed to spend over $7
million to convert the Hotel to a Crowne Plaza and agreed to
pay Holiday Franchising a percentage of all revenues
generated over the ten-year franchise term. Id.
¶ 5. As a condition of the license agreement, plaintiff
agreed to a Property Improvement Plan (“PIP”)
which required it to spend millions of dollars to renovate
the Hotel. Id. ¶ 45. Before executing the
license agreement, Holiday Franchising provided a Uniform
Franchise Offering Circular (“UFOC”) which
confirmed representations that Holiday Franchising had
previously made regarding access to a central reservation
system, advertising and marketing, and Holiday
Franchising's ability to drive demand to the Hotel.
Id. ¶ 47. The license agreement incorporates by
reference a Franchise Disclosure Statement
(“FDS”) and a Brand Standards Manual
(“BSM”). Id. ¶¶ 49, 51.
Together, the license agreement, FDS, BSM and UFOC define the
relationship between Holiday Franchising and all hotels in
the “System, ” including the Hotel. Id.
¶ 52. Holiday Franchising drafted the license agreement
and FDS for uniform use throughout its Crowne Plaza franchise
system, i.e. the System. Id. ¶ 50. The
documents set forth terms and conditions that are not subject
to individualized negotiations by individual franchisees such
as the Hotel. Id. The license agreement states that
the “System” includes “access to a
reservation service operated in accordance with
specifications established by [Holiday Franchising].”
Id. ¶ 54. To hotels such as the Hotel,
participation in the Holiday Franchising reservations system
is the single most valuable benefit obtained through the
franchise agreement. Id. ¶ 55.
6, 2009, after spending millions of dollars in upgrades, the
Hotel opened as a Crowne Plaza hotel. Id. ¶
101. At that time, the Hotel became dependent on Holiday
Franchising's reservations system, and its revenues
dropped. Id. ¶ 7. Holiday Franchising knew that
it was important to promote the Hotel as being located in the
Kansas City market. Id. ¶ 102. Nevertheless,
Holiday Franchising failed to take steps to associate the
Hotel with key words to identify it in the Kansas City
market. Id. ¶ 103. Instead, Holiday Franchising
took steps to disassociate and hide the Hotel's presence
in the Kansas City market. Id. ¶¶ 42, 104.
Holiday Franchising's actions caused a significant
reduction in the Hotel's visibility within reservations
channels and inhibited the ability of potential guests to
locate the Hotel in the Kansas City market. Id.
of 2009, plaintiff noticed that the Holiday Franchising
reservations system had sent almost no business to the Hotel.
Id. ¶ 117. Plaintiff investigated the matter
and discovered that for guests looking for a Crowne Plaza
hotel in Kansas City, ...